AA Response to the Pre-budget Statement

Chancellor gives with one hand and takes with the other

24 November 2008

On fuel prices the AA President said that the Chancellor is "giving with one hand and taking away with the other".

Edmund King, AA president said: "The Chancellor is giving with one hand and taking away with the other. Increasing fuel duty whilst reducing VAT shows that the Chancellor is playing roulette with global fuel prices and could lose his gamble. It is a very big gamble as there are 32 million motorists out there and most of them have a vote. If the global price of oil increases this hike may come back to haunt the government. It also means that when VAT reverts to 17.5% the motorist will be hit at the pumps once again."

The AA welcomed plans to increase capacity on the motorway network as congestion costs billions of pounds to business and individuals each year.

Vehicle Excise Duty

Gordon's short-term tonic doesn't give much fizz to the car market

Plans to increase VED by a maximum of £5 in each band was welcomed by the AA. Edmund King, said: "We believe Government plans to delay the massive hikes in VED is welcome. However this still seems like a temporary reprieve or a "short-term tonic" to the car market but uncertainly about future taxes does little to promote consumer confidence today.

"Gordon's short-term tonic for motorists, whilst welcome, is not enough to bring the fizz back to the used and new car market."

Fuel duty

The 2.5% cut in VAT will save 1.72p on a litre of unleaded at the pump.

Current price of petrol is 92.88. That is 50.35 fuel duty and 13.83 VAT at 17.5%.

At 15%, that would be 50.35 fuel duty and 12.11 VAT.

Difference = 1.72 ppl.

If fuel duty increases by 2p per litre then the saving on VAT will be lost.

the Chancellor gains 0.5 pence/litre

The recent high fuel prices have affected 77% of AA members in terms of them having to cut back on journeys, or other expenditure or both. Families and business need a period of fuel price stability and the Chancellor has provided that by continuing to freeze fuel duty. This should help stimulate other spending in the economy and also help restore some business confidence.

Car sales

The temporary cut in VAT will reduce the price of new cars but without other incentives such as a scrappage scheme will probably not do enough to boost the market.

By way of an example the list price of a typical small family car, a Ford Focus 1.6 petrol Zetec would go down by £338 with 15% VAT.